GAO Reports “Misplaced” Focus on NPEs in Patent Litigation

The U.S. Government Accountability Office (GAO) issued its much-anticipated report today on the increasing volume of patent litigation and the role of non-practicing entities – aka “trolls” –that own patents but don’t actually manufacture products based on those patents.

Given all the political and media furor over alleged trolls, this is a report worth reading. The GAO’s conclusions are clear: the surge in litigation is much smaller than critics would have you believe, and it has surprisingly little to do with trolls or other cartoon villains.

The GAO is a neutral and non-partisan observer. Congress instructed it to investigate the issue when it passed the America Invents Act of 2011.

The conventional wisdom, then as now, has been that non-practicing entities are tying tech companies up in knots with baseless infringement lawsuits.

What the GAO actually found, however, is quite different:

1. The U.S. has a long and distinguished history of inventors who license out their inventions – and sometimes sue infringers – rather than build products themselves. In a cover letter to Congress, the GAO highlighted the example of Elias Howe, who invented a key component of the sewing machine but didn’t try to manufacture it. Howe sued Isaac Singer for infringement, and the two worked out a licensing deal.

2. The recent surge in patent litigation isn’t nearly as dramatic as advertised. The number of patent infringement lawsuits fluctuated up and down from 2000 to 2010. It did jump in 2011, but the GAO says that was largely in response to provisions in the America Invents Act. (The law limited the number of defendants that could be named in one lawsuit, whereas previous rules allowed plaintiffs to sue multiple companies in one lawsuit.)

3. The bulk of the increase in patent lawsuits has come from operating companies that make products. Only about a fifth of those suits were brought by patent-assertion firms. The GAO’s analysis directly contradicts some of the research popularized by vocal critics of non-practicing entities.

4. One key reason for increased patent litigation has been poor patent quality – patent claims that are vague or overly broad. At the same time there is also increasing recognition that patents are a valuable asset.

Although confirming that there has indeed been an increase in patent-related litigation, the GAO study explicitly warns that it would be “misplaced” to focus on non-practicing entities as the main source of the increase.

The GAO’s main recommendation is that the USPTO take more steps to improve patent quality. We at Intellectual Ventures have been saying the same thing for a long time. If patent claims are precise, clear and accurate, the wasteful litigation will gradually fade away on its own.

We have a vested business interest in inventing, and in buying and licensing, the highest-quality patents. Over the last 12 years, we’ve reviewed hundreds of thousands of patents and bought only about 15 percent of the assets we’ve reviewed. If the secondary market for patents is going to thrive and provide much needed liquidity for inventors, it will be because of the high quality of the inventions that are for sale.

We may not agree with everything in the GAO report, but we’re gratified that it cuts through a lot of the overheated rhetoric about “trolls” and “privateers” and sheds some real light on what’s happening in patent litigation in the US.